As owners of about two dozen large, quake-damaged office buildings in the San Fernando Valley struggle to make repairs and reopen, many of them are racing against a deadline: July 17.
More than just the six-month anniversary of the Northridge earthquake, it marks the day when many tenants of these buildings can exercise an escape clause and walk away from their five- and 10-year leases. In some contracts, landlords have even less than six months to fix their properties before tenants can break rental agreements.
Some owners are unlikely to meet their deadlines because of delays in securing Small Business Administration loans, insurance payments, construction permits and contractors. But not all displaced tenants are sympathetic. Complaining about working out of boxes in their homes or tight temporary offices, some tenants say they won't wait more than they're required to before moving permanently elsewhere.
"It's a waiting game to see which (building) owner comes back and when," said Cathy Scullin, a broker at Zugsmith-Thind, a commercial real estate firm in Encino. And if they do, she asked, "do they come back intact, or crippled because they lost their tenants?"
Neal Tenen is one of seven lawyers who shared offices at the Sherman Oaks Atrium at Magnolia and Sepulveda boulevards, before the earthquake forced them to scatter and set up makeshift offices, mostly in their homes.
Tenen says he has been a tenant at the Atrium for seven years. "It's a super-nice building," he said of the four-story structure with hundreds of windows, many of which were shattered by the quake, and an atrium that is now obstructed by construction scaffolds. But if the 96,000-square-foot building isn't repaired by mid-July, as required under his lease, Tenen says he may not come back.
The city's Department of Building and Safety estimated the Atrium's structural damage at $500,000.
Tenen and other lawyers are talking about buying a small office building of their own. "It's going to be a close call" whether the owner meets the deadline, he said. "There could be a mad rush to finish."
The owner of Sherman Oaks Atrium, Advent Realty Limited Partnership, declined to comment. But the Atrium's leasing agent, John Sabourin of Beitler Commercial Realty Services, says the owner had earthquake insurance. Sabourin says the building was 80% occupied before the quake and will reopen in mid-June, meaning tenants will have to return under their leases or face a possible lawsuit.
Before the 6.8-magnitude quake, tenants gave little thought to the fine print in leases called the "damage and destruction" clause. But the clause typically gives landlords three to six months to restore their properties after a disaster, said Bill Inglis, a broker with CB Commercial Real Estate Group in Sherman Oaks. Attorneys say tenants signing new leases now want shorter time limits for landlords to make repairs.
Property owners are keenly aware of these deadlines, but their efforts to beat them are running up against delays caused by heavy demand for construction work and governmental services.
Larry Berman is waiting for an SBA loan to rebuild the Scotty Building on Ventura Boulevard in Sherman Oaks. The Scotty Building is actually two structures that are connected, totaling 74,000 square feet. But one of them, a two-story structure, burned in a fire caused by the Northridge quake; the other five-story building reopened a month ago after smoke damage had been cleaned up.
Berman says his insurance policy covered the $3-million damage, and his plans are to build a new two-story structure. But he says that building won't be finished for another year. Still, Berman says he isn't worried about reopening without tenants because he expects plenty of tenants dislocated from the quake to be in need of good office space; plus, he claims many of his tenants will return, even after a yearlong wait.
Brokers agree that office space in the Valley is tightening: the office vacancy rate dropped to under 10% in the first quarter, from nearly 14% in the previous quarter. One big reason: 25 major office buildings in the Valley were severely damaged by the quake, according to a survey by the real estate firm Zugsmith-Thind. The survey didn't count office buildings smaller than 20,000 square feet, or headquarter buildings such as the Hamburger Hamlet building in Sherman Oaks--part of which was ripped apart by the quake and remains empty. The survey also didn't include the scores of retail shops that were ravaged by the temblor.
One high-rise that beat the six-month deadline was the Tower, a 13-story building in Sherman Oaks on Ventura Boulevard. But it took more than $1 million of insurance money and a construction crew of 200 who worked round-the-clock to get the building reopened in late March.